Transitioning from early-stage venture to late-stage growth

At a glance

• Founders shouldn’t delay handing off workloads or underestimate how long it will take to find the right lieutenant, and they should over-invest in the recruitment process.
• Risks around technical performance, product fit and go-to-market should be resolved by the growth stage.
• A business’ demonstration of accountability for delivery across the management team is more important than the final landing point at year-end.
• Teams should engage investors early and be transparent in the company’s trajectory.
• Growth-stage businesses need to retain the spark, agility and excitement that made them exciting new companies in the first place.

At Teachers' Venture Growth (TVG), we invest from Series B through to late-stage growth. Operating across that spectrum requires agility as investors; but much more so for founders. Some things remain constant at every stage: a great team with a strong product, serving a large market with clear competitive differentiation. But the transition from early to growth stage also brings about new challenges. Below, I've outlined five factors that founders should bear in mind.

1. Management team: The evolution from great founders to a great organization

Early startups are typically led by visionary founders who represent the first and last word on their company's mission and product. As companies scale, the emphasis shifts from having conviction on the founders to the presence (or not) of a robust management team and organizational structure. At TVG, we assess not only the founding team but the organization and workforce they have built around them. A strong organization gives resilience, diversity of thinking and helps to inspire investor confidence. The ability to pair the structure-requirements of a growing company, with the flexibility-requirements of a disruptive one, is the hallmark of a great growth-stage business. 

Our advice to founders is not to delay handing off workloads; nor under-estimate the six to nine months it can take to find great lieutenants, and always over-invest on the recruitment process, including deep references and fit tests.

2. White-hot risks are gone

A venture raise should come alongside a clear roadmap for the use of funds, focused on removing the most prescient risks to the business. At growth stage, we expect to see the “white-hot” risks around technical performance, product fit and go-to-market resolved. Where those risks persist, teams would be well-advised to refocus resources on those flashing lights and extending runways while they do so, rather than seeking to raise growth capital too soon. 

With those risks resolved, a growth round can be focused on the next set of challenges – unlocking new customer segments, expanding internationally, executing M&A, responding to competitive threats and scaling into a global category leader. 

3. Forecasting accuracy

Early-stage founders are laser-focused on their cashflow: small movements can be the difference between making payroll and not, or sometimes be life or death for a company. Beyond the extreme discipline of cash preservation, extensive budgeting processes are often of little value in the early years: for a business growing 100% year-over-year a 20% budget miss corresponds to only a three-month delay in the journey. In the public markets, a 20% miss might be catastrophic. 

Growth stage businesses sit in-between these extremes, with insulation from public market volatility but under a steadily growing pressure for granular control of the budgeting process and outturn. More important than the final landing point at year-end is the demonstration of accountability for delivery across the management team. It is why we ask for additional scrappiness from management in finding ways to hit target in our growth companies. As IPO comes into view, this training will come to the forefront.

4. Excellence in investor communications

As a team’s forecasting accuracy improves, so too should their investor communications. That might not necessitate building a large Investor Relations team, but it does require growing sophistication in communication. The process around a growth stage raise can be as important as the final content presented: teams should find time to engage investors early; be transparent in company trajectory and milestones; and ensure that the data-room is clear and high quality before launching the process. 

5. “Never stop racing”

“You’ll never stop racing. Even at Okta today, several years after going public, I’m often lurching from crisis to crisis. The challenges never stop – they just get bigger and more complicated.” (Frederic Kerrest, Zero to IPO)

Finally, growth-stage businesses must, above all else, retain the spark, agility and excitement that made them exciting new companies in the first place. This cannot be recreated artificially; but is a culture and mindset that must be nurtured by the senior team on an ongoing basis. Growth-stage teams must be oxymoronic: adding structure and rigidity in finance and legal, while empowering agility and independent decision-making elsewhere; removing product risks in one area while experimenting and failing fast in another; growing up but staying young. 

Kieran Mahanty is a Director at Teachers' Venture Growth (TVG), based in London, where he invests in disruptive tech across all sectors of the economy, with a particular interest in sustainability, synthetic biology and the agri-food system. Kieran has previously worked at Blue Horizon, Temasek and PwC in roles across Europe, Middle East and Asia. He holds a first class BA degree in Philosophy, Politics and Economics and a M.Phil in International Relations from the University of Oxford.